$ SOFTNESS, ₹ SOFTNESS

The US is the most indebted country in the world. The annual budget deficit is close to $2 trillion. This is the net borrowing requirement of the US Treasury for this year. On top is the need to repay older debt that is maturing in this year. That is another $9 trillion. Hence the gross borrowing requirement is in excess of $10 trillion this year. It is funded by American and foreign investors, including the foreign exchange reserves of the world. Imagine the stress this puts on global dollar surpluses and savings. To attract the financial flows toward the US bonds, the risk free interest rate offered is quite high, currently close to 5%.

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For any other country such a high debt load would have led to a downgrade of its sovereign rating. But this is the US and its currency is still the king of the world. It still attracts capital from the rest of the world. The allure of dollar assets however is waning over time. The share of global foreign exchange reserves held in the form of dollar assets has gone down from 72% to 58% in the past 20 years. The trend is clearly downward.

That is why the world is talking about “de-dollarisation.” This year there are visible effects. The dollar index which is a measure of the dollar's strength, fell 11% in the first half of 2025. This is its steepest six-month slide in 50 years. The other big news is that of the rise of gold. For the first time, the value of the fraction of reserves in gold now exceeds that in dollar assets. This headline hides a subtler truth. According to the International Monetary Fund, 58% of the disclosed global forex reserves are still in dollars as of 2024, far ahead of any rival currency. But thanks to a historic gold rally, the market value of official gold holdings has gone above the holdings of US Treasuries presently in global reserves. That's not the same as gold overtaking all dollar assets in reserve portfolios but it's still symbolically powerful.